Stages of Foreclosure in the Pekin Real Estate Market 

Foreclosure is a complicated, uncertain process and is stressful both to the homeowner and to potential buyers. It is usually accomplished in three stages (pre-foreclosure, foreclosure, and post-foreclosure).

The exact process is governed by state laws which fall into two basic categories:

Lien Theory State

Title Theory State

It is helpful to understand these laws in relation to the foreclosure stages.

Lien Theory States

In a Lien Theory State, the homeowner holds the title and the lender institution places a lien on the property using the mortgage instrument.

Connecticut, Delaware, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, New Mexico, New York, North Dakota, Ohio, New Jersey, Pennsylvania, Rhode Island, South Carolina, Vermont, and Wisconsin are Lien Theory states.

Foreclosure in these state follow a judicial process. The lender files a complaint to take legal action against the borrower. The court requires the lender to show evidence that the borrower has defaulted on the loan agreement. If the lender can show that the mortgage contract agreement terms were not met the foreclosure process can begin.

The judicial process in Lien Theory States is often lengthy and complicated because the courts are not known for their expeditious handling of cases and because the homeowner holds the title.

Title Theory States

In a Title Theory State, the lending institution holds the title to the property in the name of the borrower through a Deed of Trust.

Alabama, Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Georgia, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire,  North Carolina, Oklahoma, Oregon, Puerto Rico, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia and Wyoming are Title Theory States.
 

In these states, foreclosure is not handled by the court system … it is handled by a third-party trustee named in the Deed of Trust. Basically, the deed is placed in trust with this third party until all obligation contained in the loan agreement have been satisfied.  The deed of trust gives the power-of-sale to the trustee.

This non-judicial process in Title Theory States can be completed in approximately three months.

Pre-Foreclosure Stage

When a homeowner is behind in making mortgage payments, the lending institution will probably make numerous attempts to get the homeowner to bring his/her account up to date. After several warnings, the lender may resort to threats of foreclosure.

However, not until the lender files a public Notice of Default (NOD) does the property enter the foreclosure process. At that point, it is in the pre-foreclosure stage.

In this stage, control of the property is still in the hands of the homeowner … the mortgage company cannot yet take possession of the property or sell it.

The length of the pre-foreclosure period is dictated by state law. The time period may vary by state from 30 days to as long as 180 days.

This is essentially a ‘grace’ period to give the homeowner one last opportunity to pay the mortgage company.

Perhaps a homeowner who suffered a prior loss of income has now recovered and can either get a personal loan or resume mortgage payments sufficient to satisfy the lender.

It is to the homeowner’s advantage to sell the house before it goes into the next stage of foreclosure because a foreclosure has a long-lasting, devastating effect on the homeowner’s credit score. 

There is often less risk and complication in buying a home in the pre-foreclosure stage. Buyers should check the local newspaper for Notices of Default or consult with real estate agents.

Foreclosure Stage

At the expiration of the pre-foreclosure period, the property is officially ‘in foreclosure’ and it can be placed on the market for sale through auctions.

Homeowners receive a Notice of Trustee’s Sale (NTS) or a Notice (Judgment of Foreclosure Sale (NFS) disclosing the date on which the property will be sold. 

Homeowners, however, can stop the foreclosure process at this stage by paying off the mortgage or by filing bankruptcy on the property before the date of sale.

Auctions are conducted throughout the country in the county in which the property is located. Bidders usually submit sealed bids and must pay cash or show proof of financial status. They do not have an opportunity to examine the property or research the title before bidding.

Even after the sale of a property at auction, some states give the homeowner one last chance to recover the property. This is referred to as the ‘redemption period’.  Although the winning bidder technically owns the property, the homeowner still has the right to redeem the property if he/she can pay the loan amount in full.

Most title theory states do not have redemption periods while most lien title states do. The redemption period varies from state to state and can range from a few days to more than a year.

Although, an auction offers bargain prices, it also involves a rather high level of risk. Auctions are not recommended for the novice.

Post-Foreclosure Stage

In the post-foreclosure stage, the property ownership has been transferred to the lending institution or to a private auction bidder and the homeowner no longer has a claim on the property.

The lending bank or mortgage company may take ownership either by agreement with the owner during pre-foreclosure or at a public auction. These properties are referred to as Real Estate Owned (REO) and become non-performing assets. The government is the official owner of the property if the loan is backed by a governmental agency such as the Department of Housing and Urban Development (HUD). 

The properties are listed on the web and/or through real estate agents. Transactions are handled like any other real estate purchase where the buyer makes an offer, the seller accepts or declines and the buyer and seller formalize the agreement at a closing.

Maintaining this property can be expensive and the principal is still outstanding so lenders may be anxious to dispose of the property. On the other hand, the expense of maintaining the property and the expense of making repairs may raise the asking price beyond the price available during pre-foreclosure or at an auction.

Summary

The staged foreclosure process gives the homeowner every opportunity to retain ownership of a property.

The staged foreclosure process also gives potential buyers an opportunity to acquire properties at very attractive prices.

To take advantage of these opportunities, both homeowners and potential buyers should become thoroughly familiar with the process and the specific laws of the state.

For a FREE list of foreclosures in the Pekin Real Estate market, visit us at www.free4closedlist.com or www.livinginpekin.com.